Capital & Financing

Venture Debt

Borrow against your investors' confidence instead of your cash flow — and learn to price the fees, warrants, and covenants that make "11% money" cost far more than 11%.

  • Advanced
  • 8 min total
  • 12 chapters

What decision this helps you make: Whether to take a venture loan alongside your next equity round, how large it can safely be, and what you are really handing the lender in exchange.

What this topic is

A term loan made to a venture-backed company by a specialist lender — a bank with a technology practice or a non-bank credit fund. It is underwritten on the strength of the equity behind you and the credibility of your next round, not on profits or hard assets. The price is a cash coupon plus fees plus warrants, and the loan is secured by a lien on essentially everything the company owns.

Why it matters

It is the cheapest large pool of capital available to a company with no profits, and the fastest way to turn a working plan into a higher-priced next round. It is also the only capital in a startup's stack that can force a decision on a timetable you do not control. Founders who read only the interest rate misprice it in both directions.

Who should learn it

Founders and finance leads at venture-backed companies holding a lender's term sheet, operators modeling runway to a next round, and investors who need to understand what sits ahead of their preferred stock.

What you will understand

  • What a venture lender is actually underwriting — and why it is not your assets
  • Every component of the price: coupon, commitment fee, end-of-term payment, warrants
  • How amortization quietly shortens the runway the loan was supposed to buy
  • Which covenants matter, and when to sign a facility you do not intend to draw

Prerequisites

Common misconception

"Venture debt is cheap — 11% interest versus giving up 9% of the company." The coupon is the smallest part of the price, and price is the smallest part of the decision. Add the commitment fee, the end-of-term payment, the warrants, and the fact that you have handed control rights to a party that sits ahead of every shareholder in a bad outcome. The real question is never "what does it cost?" — it is "what happens if we miss the milestone?"